House prices fell by 1.3% in January as the deepening recession and turbulence on the financial markets continued to deter would-be buyers, the UK's biggest building society said yesterday. Nationwide's monthly snapshot of the housing market showed the average house price has fallen to £150,501 - down 16.6%, or £30,000, since last January.

The monthly fall is much smaller than December's, when prices dropped by 2.5% over the month, and the three-month figures also recorded a smaller fall with prices down 4%, as opposed to 4.2% last month. However, Nationwide's senior economist, Martin Gahbauer, said it was too early to say whether this marked the start of a sustained improvement in the market.

Despite steep interest rate cuts, which have reduced the Bank of England base rate to an all-time low of 1.5%, and the government's injection of billions of pounds into the mortgage market, Gahbauer said buyers were likely to remain cautious.

"While the fall in house prices and the parallel reduction in interest rates has probably made many households curious about what is currently available in the market, many are likely to be hesitant to commit in a recessionary environment of rising unemployment and increasing uncertainty about future incomes," he said. "The fact that house prices still remain high relative to earnings reinforces this more cautious approach among potential buyers."

A lack of credit for potential buyers, consumer concern that the market still has further to fall and, more recently, rising concerns over job losses have all contributed to a slump in demand for homes, which has pushed prices down. Nationwide's figures show prices have now fallen for 15 months running, and the average price of a property is £35,000 below its peak in October 2007.

In November, the number of mortgage approvals for house purchases fell to a record low of 27,000, and Nationwide said figures for part of December suggested there had only been a small increase in new loans since then. "House purchase approvals have historically been a good lead indicator of house price movements, and we would not expect to see a stabilisation of property prices until approvals recover significantly from current levels," said Gahbauer.

He said there was evidence to suggest inquiries from new buyers were starting to pick up, but this had not yet translated to an increase in property sales.

Separate figures published yesterday by the Land Registry show house prices in England and Wales fell by 2% in December, ending the year 13.5% down. The figures, which lag behind Nationwide's because they are based on completed transactions, put the average price of a property at £158,946. The most up-to-date figures for the number of sales, which are for October, show transactions are down by 60% year-on-year to 41,123 from 102,597 in October 2007.